Debt

Debt can increase quickly, and unexpectedly. You may think late payments by a couple of days are not a very big deal. But late payment fees can mount up and also trigger an increase in the interest rate you are currently paying on your credit card. It also affects your credit score. It’s up to you, and you alone, to discover the consequences of a late payment. There can be certain situations where the amount of debt becomes so much that someone is totally incapable of paying it all off. In these cases, they have no choice but to file for bankruptcy.

Bankruptcy

Does filing for bankruptcy sound easy? Hah. Filing for bankruptcy will make it almost impossible for you to obtain a home loan or a low interest credit card or a car loan for several years. It’s not a get-out-of-jail-free card. It’s more a get-out-of-jail-for-a-huge-price card. Filing for bankruptcy is an absolute and total last resort. Unfortunately, way too many people do file when they don’t have to; a lot of the time, if you can find ways to reduce your spending, control your money through a budget, or get another job, you can slowly fight your way out of debt. (More on this later, too.) It stays on your credit history for 10 years. Think how much has changed just in ten years. And, most of the time, it can be avoided with significant changes to one’s spending.

College Loans

Something may be thinking about is entering college or another form of advanced education. Get excited: college is sweet. There are no parents to tell you what to do, you have control over the activities you want to do, the courses you want to take, and the things you want to buy. You have more control over your life, and your spending. But college debt is increasing dramatically and you can’t file bankruptcy on college loans. Period. Between your college books, all the hidden fees, a place to live (be it dorms or an apartment), and the skyrocketing cost of tuition, there may not be all that much room to for other things you want–or need. More than ever, college students are depending on loans to make it through. You may not think much about that at first–out of sight, out of mind, right? You don’t even start paying it back until typically six months after you graduate. But you have to be aware of how much you take out in loans. It may seem like free money at the time, but it really isn’t. Make sure you use your student loans for things you need, not things you want at the spur of the moment.

Keyterms

Punctuality: The characteristic of being able to complete a required task or fulfill an obligation before or at a previously-designated time. Good living takes punctuality, now, and for the rest of your life. Bankruptcy: a proceeding in a federal court in which an insolvent debtor’s assets are liquidated and the debtor is relieved of further liability. Asset: any item you own that can be converted into cash. Examples: cash, real estate, a car, stocks, bonds, etc. Simply put, banks will look at your prior ability to handle debt before lending money. Bankruptcy means that you’re giving yourself a clean slate at a very large price: they can take your stuff to pay off the debt–your car, your house, and other assets. Not fun. Bankruptcy is like a scarlett letter.

Statistics

89% of bankruptcy filers still get offers for credit cards, but the interest rate is huge!

Tips

• When you’re in college or out of town for a long time, go to the post office and fill out a form to forward your mail. Be aware of what bills are coming up. • Late rent for an apartment may have a slight penalty, and make your landlord less likely to give you a good referral. But late payments on a home mortgage can ruin your credit and may result in the loss of the home. (More on this later.)